Volatility Survival

by Ian Harvey


There are several strategies for volatility survival that investors can bear in mind, that will let them navigate market volatility and remain in the hunt for immediate profit-making opportunities, wealth-building advancement and long-term investment benefits.

“The key to volatility survival is remaining flexible and focused.”

Maybe you can relate to one of the following quotes to help your thought of direction:

“It seems that we forgot to tell our little boys that the strongest trees -- those that tend to live the longest -- bend with the wind.”

                                                                  -by Doris Helge, Ph.D

"Notice that the stiffest tree is most easily cracked, while the bamboo or willow survives by bending with the wind."

                                                                  - by Bruce Lee

“Bamboo finds its strength in knowing how to give and bend without breaking when even the strongest winds blow.”

                                                                  -From Sho-Chiku-Bai

What are Some Safe Strategies for Volatility Survival?

Investors should:

1. Stay in the Game:

When volatility becomes extreme, it might be tempting to bail out of stocks indiscriminately. Do so at your own risk. Between 1928 and 2010, if an investor missed just the best 1% of the market days, the annualized return plunged from a positive 4.86% to a negative 7.08% – a differential of 12.94 percentage points.

“Staying in the game if at all possible always has been, and always will be, the pathway to profits.”

2. Take What the Market Gives You:

Bull markets aren’t the only places you can make profits. The key is being nimble enough to recognize that the tide has changed, and to trade accordingly using a variety of tools and strategies.

3. Consider Alternatives for Volatility Survival:

An example of other profit opportunities are commodities such as gold and oil – which are worth buying on pullbacks. These alternative assets can help preserve the value of your portfolio when the markets rollover or stagnate. 

4. Think Globally:

The conventional wisdom used to be that you’d put 5% of your portfolio into “foreign” stocks. It’s a new ballgame now, and some advisors say the right number is actually 30% to 40%. One way to achieve this objective is to put new money to work in so-called “glocal” stocks (globally recognized brands with localized focus), with fortress-like balance sheets, diversified revenue and experienced management. One recent study found that foreign sales accounted for 46% of overall revenue for S&P 500 companies that report sales from foreign operations – up from 30% just a decade ago. And some think that number is understated.

5. Sell Strategically:

Capture profits and protect your capital using trailing stops that are gradually ratcheted up over time. This will help you raise cash (which can be used to buy into the rebound when it eventually happens) without the emotional turmoil that causes most investors to make rash decisions that doom them to years of subpar profits.

6. Hedge Your Bets:

Use specialized inverse funds to hedge downside risk that will accompany the rollover to the downside and rack up significant gains at the same time.

Hedging with options is a strategy that can be used like insurance for your longer term investments in shares. Just like you would buy insurance for your home to limit potential losses that may come from a flood or fire, you can use options to limit the possible loss your investments may suffer from a market downturn.

7. Deal in Dividends:

Dividend-paying stocks pack a punch – there is no denying this!. A Tweedy Browne Fund Inc. study of the cash payouts concluded with this stunning statement: “Over the past 100-plus years, an investment in a market-oriented portfolio that included, most importantly, reinvested dividends, would have produced 85 times (our emphasis) the wealth generated by the same portfolio relying solely on capital gains.”

8. Keep Your Keyboard Ready:

Bear markets create bargains – often lots of bargains. Keep a shopping list of the companies you hope to buy, and then step-in to the fray. If market conditions remain uncertain, change your tactics. For example, consider averaging into your position over days, weeks, or even months, to make sure you don’t overpay. That can help you take advantage of lower prices while also keeping you in the game. Think of it as a form of offensive defense.

Do not forget that options trading is a great method for volatility survival in a bear market, producing excellent profits if executed with deliberation and in a calculative manner!

Always have a plan, such as in any great business, a plan is essential for success, therefore your investment into the market to be profitable is also your business—“Plan Ahead”-- and stick to it where possible.

Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


”Success is simple. Do what's right, the right way, at the right time.”

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